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Eurozone bounces back with modest growth

ELEANOR HALL: It's been going backwards for well over a year, but now the Eurozone has finally recorded a quarter of growth.

The 17-nation union posted a 0.3 per cent rise in GDP for the June quarter with its two biggest economies, Germany and France, leading the way.

Most economists see it as an encouraging sign that Europe may finally be in recovery from its near-catastrophic financial crisis, but analysts are also warning that this is only the start of a difficult climb back for the Eurozone.

Business reporter Michael Janda has more.

MICHAEL JANDA: In July last year the European Central Bank president Mario Draghi made this bold promise.

MARIO DRAGHI: The ECB is ready to do whatever it takes to preserve the euro - and believe me, it will be enough.

MICHAEL JANDA: Just over a year later, the euro is still intact with all 17 member nations, and the latest evidence that European authorities are living up to their grand promises is a return to economic growth for the eurozone in the June quarter after a year-and-a-half of recession.

TONY FARNHAM: The headline number was a little bit above market expectations going to 0.3 against expectations of 0.2 per cent and it's the first time we've had an increase in seven quarters as well, so it was nice to see some green on screen.

MICHAEL JANDA: Patersons Securities economist Tony Farnham.

He says growth of 0.7 per cent for Germany and half a per cent for France led the way.

TONY FARNHAM: On the positive side was the Germany and France, the two big gorillas in the space, delivered quite reasonable growth rates in the quarter.

MICHAEL JANDA: But, while Portugal ended two-and-a-half years of recession with a robust expansion of 1.1 per cent last quarter, the two biggest members of the struggling so-called peripheral economies remained mired in recession.

TONY FARNHAM: The pigs economies are still dragging the chain. Heading those of course is Spain and Italy. They're still in recession at this particular point in time, and events in both those countries from both a political and economic side of things do not portend a quick turnaround turn around there either.

MICHAEL JANDA: Economist Gabriel Stein warns that even the countries that are starting to grow may find the economic recovery slow and painful.

GABRIEL STEIN: What I think we need to be careful about is how strong that recovery will be. What we have seen in other countries, the US, the UK and so on is that even when the recovery has started, it remains slower and weaker than in past recoveries.

MICHAEL JANDA: The slow nature of the recovery is best illustrated by the fact that eurozone GDP is only about half way back to its pre-financial crisis high from its post-financial crisis trough and that's almost five years on.

One reason for the slow recovery is, of course, the series of European financial crises that have plagued the reason since the global financial crisis.

And Gabriel Stein warns there may be more of these to come.

GABRIEL STEIN: Overhanging this is the imponderable of potential further political or fiscal crises.

MICHAEL JANDA: Another factor has been the huge unemployment rates in many eurozone countries, with over a quarter of Greeks and Spaniards still unemployed, and at least half the youth in those countries out of work.

SPANISH MAN (translated): There's no work, there's nowhere where you can find work and it's stressful. I think about moving abroad because things are so bad.

MICHAEL JANDA: But Berenberg's senior economist Christian Schultz thinks the worst may be over for Europe's unemployed.

CHRISTIAN SCHULTZ: There are some signs that we may see the peak of unemployment certainly for the euro area as a whole and maybe also for most of the crisis countries.

MICHAEL JANDA: And Dr Schultz says continued economic growth is the key.

CHRISTIAN SCHULTZ: I think it's the start of better times for the Eurozone. With growth unemployment will ultimately fall which will improve stability on the political side and also reduce the weight on the public purse so debt levels could stabilise and deficits go down.

MICHAEL JANDA: But potential stumbling blocks to growth are plenty, and the next is Germany's federal election next month.

Tony Farnham again.

TONY FARNHAM: Until that vote gets out of the way you're going to see, I guess, a bit of a hiatus in key policy making because they want to ensure that Merkel doesn't have her election campaign messed around with over the next little while.

MICHAEL JANDA: And if Australian voters are worried about economic management, one can only imagine how German voters are feeling after their part in the Eurozone bailouts.